Is Defaulting on the National Debt on the Table? Dean Baker calls out Dems

[jtown1123]

Economist Dean Baker:

The reality is that we can get back to full employment quickly but we lack the political will to do it. The reality is that the budget deficit is not a problem in the short-term because of the vast amount of unemployment – the deficit is supporting the economy and preventing unemployment from rising higher.

And, the budget deficit is not a problem in the long-term – the problem is a broken U.S. health care system that threatens to send costs through the roof in both the private and public sector. If we fix our health care system, then we have no deficit problem.

If Social Security is on the table, it is because people in the Obama Administration and the Democratic Party leadership want to cut Social Security. It really is very simple.

Read full article here: http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/is-defaulting-on-the-national-debt-on-the-table?utm_source=CEPR+feedburner&utm_medium=feed&utm_campaign=Feed%3A+cepr+%28CEPR%29

[sabrina 1]

1. I'm glad he's calling them on this. When all the other SS lies

have been debunked, the latest one is to say 'the money is gone from the Trust Fund so we have to cut benefits'. That is a lie unless, as he says, the U.S. Govt. plans to default on its debt obligations. And if it were to do that, the country would be over.

Also, just the fear of that, which is what they are saying when they make the claim that they cannot pay back the SS trust fund, should cause the SS Fund to take its money and invest it somewhere else. And of course so would other creditors, IF it was true.

Good for Baker for forcing this lie into the public forum. It's disgusting the way they think they can fool people.

[DJ13]

2. Our government wants to default on the bonds representing the SS trust fund

Thats why they want to rush through a lame duck up or down vote after the election (like we wont hold those still in Congress responsible in the years to come :eyes:).

All this just so the ruling class can continue paying an unfair low tax rate instead of paying their share to recoup the shortfall in SS thats coming ...... in 25 years.

It seems perfectly acceptable to our politicians to default on bonds that actually belong to the US workers, but if they tried this on Chinese held bonds there would be hell to pay.

[jtrockville]

3. There should be hell to pay on any default.

Shame on us US workers (past, present and future) for not even bothering to THREATEN hell!

[indepat]

9. Shame, shame, as Andy would say: I say shame, shame on all of us

:)

[Ikonoklast]

16. Vote on what? A 'Sense of the Congress' resolution?

There will be NO VOTE that carries the force of law on any recommendations from any committee by a lame-duck session of congress.

[Autumn]

4. It really IS that simple

and very true. K/R

[enough]

5. Interesting point here: cutting Social Security benefits is equivalent to defautling on US bonds.

snip from the article>

.....Given the ease with which the country can borrow, and the relatively minor burden posed by interest payments there is no reason for the United States to default on its debt. But of course there is also no reason for it to cut Social Security payments, which would amount to a defacto default on its debt to the Social Security trust fund. Near retirees have already paid for their Social Security with their Social Security taxes. These taxes were used to buy the U.S. government bonds held by the trust fund. If the government substantially reduces scheduled benefits, this is effectively defaulting on these bonds.

snip>

[customerserviceguy]

10. Would inflating the currency also amount to a de facto default?

Because if we don't raise taxes and/or cut spending to redeem those specialized Treasury securities, that is the option that is the only one remaining. Only budgets that run surpluses can pay back the borrowings that took place over decades, and proposing multi-billion dollar infrastructure stimulus programs pushes that day pretty far into the future.

[girl gone mad]

6. Baker is correct

The US can only default by choice. We should not even be talking about deficits right now, while we have near 20% unemployment and no inflation in sight. Is there one person advising Obama who actually understands economics?

[glitch]

7. They understand economics, they just have different objectives from ours.

A mistake to think anyone arguing for default is fighting on our side.

[girl gone mad]

8. Yes, they must understand, having quickly pumped trillions of dollars..

into the banks to rescue the elites from their own failures.

It's interesting that the wealthy financial class and the defense contractor class get all of the benefits of the sovereign fiat system, while the working class is relegated to the false gold-standard paradigm.

[glitch]

14. Ain't it?

But I am sure it's all just some kind of freaky happenstance. Lucky lucky duckies!

[depakid]

11. Dean Baker is a troll 111

this is hugh!@

Series!

[TexasObserver]

12. "Of course there is no reason for the U.S. government to default on its debt."

The title of the thread is deceptive.

There is zero talk of defaulting on the debt, and zero chance of it happening.


The deficit should not be a concern as long as unemployment is high. The budget cannot be balanced without increased tax revenues, which cannot occur without high employment.

[BzaDem]

13. The title of that article is ridiculous. We would never default on our debt, and we don't need to.

Not even considering how catastrophic doing so would be, we would never have to default on our debt. He mentions this in the article, but his title is very misleading.

"If Social Security is on the table, it is because people in the Obama Administration and the Democratic Party leadership want to cut Social Security. It really is very simple."

That is bogus. We have a large 2037 shortfall in the Social Security trust fund REGARDLESS of how easy or difficult it will be to substitute trust fund bonds with non-trust-fund bonds (to pay off the trust fund bonds). In other words, in the absence of any legislation, benefits will be cut in 2037 by 25%. We need 60 votes to prevent that from happening (either now or later). But later, there is a chance that Republicans would control one or both houses of Congress and/or the Whitehouse. Do we want to fix the shortfall now, or when Republicans are in partial control?

[pa28]

17. I have to disagree.

Any increase in FICA withholdings, benefits cuts in the form of increased retirement age or COLA changes amounts to an equity stripping operation. Another way of looking at it is giving the SS trust fund a perpetual surplus where the money already borrowed never has to be returned. Like Greider he believes this tactic to be a back door default on owed principle. In any investment you don't call the equity at stake "worthless IOU's" while at the same time asking for the injured party to increase their capital.

The size of that surplus (2.5 T scheduled to grow to over 4T) represents low hanging fruit. Just way too tempting to politicians and Wall Street who would very much like to dissolve that equity into fees and bonuses for themselves.

SS was designed as a pay as you go program and spending down the very large surplus we have now might remove some temptation as well as relieve those who are already hard hit from paying more into the apparent black hole of FICA when they really don't need to.

We have the luxury of looking at this in 10 or 20 years. We're in the middle of an economic emergency still. Now is not the time to squeeze what's left of the middle and working classes.

[Enthusiast]

18. Right on!

Thank you for correcting the misinformation.

[BzaDem]

20. The problem with your argument, and the reason your analogies fail,

is that the loan was made between the Social Security Trust Fund and the government. Not the government and the people (seniors).

So to prevent a default, the government simply needs to pay the money into the trust fund. That says NOTHING about whether the trust fund needs to distribute one penny of it to seniors (or when to distribute the money). That is and has always been a decision for Congress; borrowing from the trust fund does not lock in the COLA level for example. That's why your analogies to breach of contract ("default on owed principle") fail.

I personally would not want to cut Social Security at all, and wouldn't be opposed to making benefits more generous. There is plenty in the budget we can cut (and plenty of revenue we can raise) outside of Social Security. But I am not going to pretend that decisions about benefits are unavailable to the political branches.

[lonestarnot]

15. Compromise would be the word. PugliCONSs want to privatize it to steal it.

[xchrom]

19. Recommend